Course title: Statistical Foundations for Finance

Course Basic Information

Academic Unit: University of Zurich, Department for Banking and Finance
(University/Department)
Course title: Statistical Foundations for Finance
Long title/Subtitle: Mathematical and Computational Statistics with a
View Towards Finance and Risk Management
Level: Master of Science UZH ETH in Quantitative Finance
Course Status: Core MF
Year of Study: Fall Semester
Number of Classes per 4h lectures
Week:
ECTS Credits: 6 ECTS
Time /Location: |According to the timetable in UZH course catalogue
Lecturer: Prof. Dr. Marc Paolella
Content
Content of the course We begin with some relevant material from probability and
distribution theory, including moment generating and characteristic
functions, the standard inversion theorems, convolutions and other
functions of two random variables, the use of saddlepoint
approximation for inverting the MGF, and (briefly covering) the use
of the FFT for inverting the CF. Also covered are some theory on
financial risk measures, such as value at risk and expected shortfall,
these being essential in quantitative risk management and portfolio
optimization. The rest of the course is dedicated to statistical
inference in the so-called IID setting, with emphasis on distribution
theory and computational methods. Topics include the bootstrap,
distributional hypothesis testing, the (mis-)use of p-values, theory of
maximum likelihood estimation, various alternative estimators,
shrinkage estimation, discrete mixture distributions, the EM-
algorithm, and tail estimation. Required is the textbook
"Fundamental Statistical Inference: A Computational Approach", by
Marc Paolella, published by John Wiley and Sons (2018). We will
cover (parts of) chapters 1, 2, 3, 4, 5, 7, and 9.

There is no final exam, but rather 4 or 5 take-home assignments

involving computer programming of the methods and techniques we
discuss.
Course’s objectives: Besides learning all the aforementioned topics, students will be
extensively "mapping" theory to computer algorithms, thus
enhancing their programming skills in any of the major prototyping
languages. The contents of the course (and emphasis on computer
programming) cover numerous critical skills for students wishing to
become "quants" in finance.
The expected On successful completion of this module, students should be able to:
outcomes:
Be fluent with the major aspects of the aforementioned (large) list of
topics, and have confidence and competence in (i) being able to
implement the methods computationally, and (ii) be able to read,
understand, and implement theory and methods from the academic
literature in quantitative finance, financial econometrics, and
quantitative risk management.